1. finance
2. bank

Singapore Company Focus
M1
Bloomberg: M1 SP
|
Refer to important disclosures at the end of this report
Reuters: MONE.SI
DBS Group Research . Equity
17 Oct 2014
BUY S$3.44 STI : 3,154.21
Ongoing fiber and mobile data repricing
Price Target : 12-Month S$ 3.85
Reason for Report : 3Q14 result release

3Q14 net profit of S$44.5m (+13% y-o-y, +1% q-o-q) was
5% ahead of our estimates.

Analyst
Sachin MITTAL +65 6682 3699
sachinmittal@dbs.com
Tiered data plan adoption and fibre customer base
continue to trend up

Weaker international call service (IDD) revenue offset by
higher handset sales
Result Summary

Maintain BUY with unchanged DCF-based TP of S$3.85
Potential Catalyst: Significant gains in fibre marketshare
Where we differ: FY14F EPS below consensus
FY Dec (S$ m)
P&L Items
Turnover
Opg Profit
EBITDA
Net Profit
Other Data
Opg Margin (%)
Net Margin (%)
3Q
2014
3Q
2013
2Q
2014
250.2
55.6
84.5
44.5
241.7
48.5
77.5
39.5
239.7
55.3
83.4
43.9
22.2
17.8
20.1
16.3
23.1
18.3
yoy chg qoq chg
3.5
14.6
9.0
12.7
4.4
0.5
1.3
1.4
Financial Summary
FY Dec (S$ m)
Turnover
Operating Profit
EBITDA
Net Pft (Pre Ex.)
EPS (S cts)
EPS Pre Ex. (S cts)
EPS Gth (%)
EPS Gth Pre Ex (%)
Net DPS (S cts)
BV Per Share (S cts)
PE (X)
PE Pre Ex. (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
At A Glance
2012A
1,076
188
299
146
15.9
15.9
(12)
(12)
14.3
36.7
21.6
21.6
11.4
4.2
9.4
0.7
45.0
2013A
1,008
197
312
160
17.4
17.4
9
9
21.0
42.8
19.8
19.8
10.8
6.1
8.0
0.5
43.7
Issued Capital (m shrs)
Mkt. Cap (S$m/US$m)
Avg. Daily Vol.(‘000)
2014F
1,042
215
334
170
18.4
18.4
6
6
16.6
40.2
18.6
18.6
10.3
4.8
8.5
0.7
44.4
2015F
1,060
229
347
181
19.6
19.6
6
6
17.7
43.3
17.5
17.5
9.8
5.1
7.9
0.6
47.0
931
3,202 / 2,517
812
ICB Industry : Telecommunications
ICB Sector: Mobile Telecommunications
Principal Business: M1 is the smallest of the three telecom
operators in Singapore. M1 provides mobile services and has
also started to provide fixed broadband services by riding on
National Broadband Network.
Source: Company, DBS Bank, Bloomberg Finance L.P.
www.dbsvickers.com
ed: JS / sa: JC
Highlights
 Revenue growth fuelled by handset sales. Revenue grew to
S$250.2m (+3.5% y-o-y, +4% q-o-q) primarily due to higher
handset sales fuelled by new smartphone releases, which offset
the continued decline of IDD revenue. However, postpaid
acquisition cost per subscriber increased.
 Average revenue per user (ARPU) in fibre likely to dip. Fixed
services revenue grew to S$17.9m (+15 y-o-y, +3% q-o-q) on the
back of higher ARPU and customer base in 3Q14. However, rate
cuts in late 3Q14 is likely to soften ARPU in 4Q14, dampening
growth going forward.
Investment Thesis
Mobile data re-pricing to benefit mobile sector
 61% of M1’s postpaid customers are on tiered data plans (vs 58%
in 2Q14) with 22% of users exceeding their data bundles. The
continued adoption will be crucial in supporting M1’s postpaid
ARPU.
Potential gains in the fixed broadband sector
 Over 80% of M1’s revenue comes from the mobile sector in
Singapore versus ~60% for StarHub and ~10% for SingTel. M1 is
the only listed telco with potential gains in the fixed broadband
sector. M1 will continue to gain broadband subscribers until its
market share reaches 20%+.
Valuation
Given healthy cash generation, we use the discounted cashflow
valuation methodology (WACC 6.8%, terminal growth 1%) to derive
a target price of S$3.85. The stock also offers a dividend yield of
4.8% for this year.
Company Focus
M1
Risks
Decline in mobile roaming
 Potential decline in mobile roaming could offset the gains
from mobile data-repricing.
Target Price & Ratings History
4.01
S$
S.No .
3.81
2
1:
2:
3.61
3.41
3.21
3.01
Oct-13
1
Feb-14
Jun-14
Oct-14
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
Page 2
Cl o s i n g Ta rg e t
Pri c e
Pri c e
21 Feb 14
3.33
3.60
31 Jul 14
3.75
3.85
Da te
R a ti n g
Buy
Buy
Company Focus
M1
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd,
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the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1.
DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates has a proprietary
position in M1 recommended in this report as of 31 Aug 2014.
2.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of
common equity securities of the company mentioned as of 31 Aug 2014.
3.
Compensation for investment banking services:
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12
months, and within the next 3 months may receive or intends to seek compensation for investment banking services from the
company mentioned.
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Company Focus
M1
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DBS Bank Ltd.
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Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E
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